Aside from impeachment concerns, 2019 ended on a relatively quiet note. But that “peace on earth” didn’t last long.
In the opening days of 2020, things took a decidedly darker turn when a black swan event occurred. One that sent shares of defense and cybersecurity stocks significantly higher.
And, with tensions still brewing, there is every reason to believe that cybersecurity and defense stocks will continue to be the biggest winners in 2020.
On January 3, U.S. forces took out Qasem Soleimani, an Iranian Major General in the Islamic Revolutionary Guards Corps. President Donald Trump said he had intelligence that showed Soleimani was targeting four U.S. embassies in the Middle East.
After Soleimani’s death was reported, President Trump said the world was a safer place and that he did not want a war with Iran. But those words rang hollow in Iran, where the now-deceased general was an extremely popular figure.
Hours after Soleimani’s death, Iran’s Ayatollah Khamenei vowed revenge. It wasn’t a matter of “if;” it was “when.”
“When” turned out to be January 8. Iran fired missiles at U.S. bases in Iraq, but they failed to inflict any real damage. Iran insisted that more retaliation was in the works.
Later that day, Ukraine International Airlines Flight 752 (PS752) crashed shortly after taking off from Tehran’s airport, killing all 176 people on board.
Iran initially denied it had anything to do with the crash. But the country later admitted it was responsible, though that particular missile strike was unintentional.
Danger remains: tensions are still high in the Middle East. There are still concerns about a war between the U.S. and Iran. A war that would not just include those two countries.
Defense & Cybersecurity Stocks
What this black swan event has also done is shine a light on cybersecurity and defense stocks.
And, judging by how much cybersecurity stocks have rallied in the opening weeks of 2020, it looks like investors expect tensions between the U.S. and Iran to continue.
For starters, cybersecurity stocks did very well in 2019. But they have been doing even better in 2020, outperforming the broader market since tensions between the U.S. and Iran erupted on January 3.
At the time of this writing, the First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) has advanced 5.8% in 2020. The Prime Cyber Security ETF (NYSE:HACK) is up five percent. By comparison, the S&P 500 is up 1.9%, while the tech-heavy Nasdaq has increased 3.8%.
Chart courtesy of StockCharts.com
Cybersecurity stocks have been on fire since the start of 2020, like Zscaler Inc (NASDAQ:ZS) advancing 27%.
Other cybersecurity stocks are also shooting higher. Fortinet Inc (NASDAQ:FTNT) is up approximately 10% year-to-date, CyberArk Software Ltd (NASDAQ:CYBR) is up 17%, and Crowdstrike Holdings Inc (NASDAQ:CRWD) has advanced 20%.
It’s Not Just Black Swan Events
To be fair, it’s not just the most recent black swan event that has been juicing cybersecurity stocks. The entire sector has been doing well—and will continue to.
And for good reason; we no longer live in a world populated with filing cabinets and “Gestetner” machines.
Chart courtesy of StockCharts.com
Most businesses are going paperless. And more and more employees are working away from the office.
To accommodate these trends, businesses are moving their data to the cloud.
Judging by the growing number of security breaches, this shift has also made the need to protect all that data more difficult to meet. This has been a boon for cybersecurity stocks.
It’s not just the need for privacy in the corporate world that is helping propel cyber stocks steadily higher. Personal/consumer data protection is also behind the explosion in cybersecurity stocks.
What does that mean?
We are living in an increasingly connected world. Whether it’s social media, online dating sites, wearable technology, or smart doorbells and ring cameras. Even Wi-Fi connected sex toys that use artificial intelligence (AI) to provide feedback are susceptible to cyberattacks.
The fact of the matter is, your data belong to you. And we all should want to know that this data is safe. But there is a trade-off. Everyone wants convenience and the latest technology, but we also demand security and privacy.
Well, cybersecurity stocks do just that.
The year 2020 has barely started, but cybersecurity companies have shot to the forefront. And they should continue to dominate this year.
This is good news for astute investors, because, as we have seen, the short- and long-term growth opportunities for cybersecurity stocks are massive.